In what has been hailed as the biggest news story of this year, the Panama Papers leak revealed how the law firm, Mossack Fonseca, helped clients to evade tax, dodge sanctions and launder money, but what does this mean for the banking sector, and in turn, the fintech ecosystem? bobsguide spoke to Dean Curtis, Managing Director at LexisNexis Risk Solutions, about this, regulations that might emerge after this event and other potential risks for the financial industry such as the Brexit.
One of the revelations that the Telegraph reports on is the suspected billion dollar money laundering ring that involved President Putin’s close associates. Alongside this, Prime Minister of Iceland bought an offshore company for his wife in 2007, but did not declare interest. The company stated that they have always operated in this fashion and that the firm “has never been accused or charged in connection with criminal wrongdoing,” according to the Telegraph.
“If we detect suspicious activity or misconduct, we are quick to report it to the authorities. Similarly, when authorities approach us with evidence of possible misconduct, we always cooperate fully with them,” Mossack Fonseca stated. Transparency International (TI), the anti-corruption group, highlighted that the data leak reinforced evidence that already existed: “a cadre of corrupt politicians, public officials and business people are exploiting loopholes in the global financial system to launder and protect their illicit wealth,” according to CityAM.
According to efinancialnews, the leak also revealed that Societe Generale, UBS, HSBC and Credit Suisse are just four of the 10 banks that requested the most offshore companies for their clients. In a statement, Credit Suisse said that it was “committed to a tax compliant business and conducts its cross-border banking business in strict compliance with all the applicable laws, rules and regulations in the markets in which it operates.”
In addition to this, HSBC said that they actively work with authorities in order to fight financial crime and implement sanctions. “Our policy is clear that offshore accounts can only remain open either where clients have been thoroughly vetted (including due diligence, ‘Know Your Customer’, source of wealth, and tax transparency checks), where authorities ask us to maintain an account for the purposes of monitoring activity, or where an account has been frozen based on sanctions obligations.”
Curtis explored how the complex nature of business ownership is what makes it easier for money launderers to carry out criminal activity. “This high profile leak has accentuated the need to implement ultimate beneficial ownership (UBO) registers across the world, allowing for individuals who ultimately own, control or benefit from a corporate entity to be identified and monitored consistently and transparently. The requirement for this measure has already been highlighted by global organisations including FATF, GAFI and FinCEN.”
He continued to describe how the provision of information will lead to a better system that inevitably prevents financial crimes and tax evasion, and this is what financial institutions need to do. As well as this, Curtis acknowledged the importance of technology for the financial sector as having “the right technology in place to distil and link that data together so that meaningful insights can be derived, and they can put the valuable resources available to them to best use.”
After these new data standards are implemented, this will mean change for the entire world, depending on which countries decide to participate. Curtis’ prediction is that banks will conduct more screening so that gaps are eliminated, patterns are considered and inaccuracies or anomalies are checked. However, “it will be more difficult for offshore financial centres to continue offering their core services in the wake of this latest scandal. Countries that enjoy a wealth of economic prosperity will be subject to particularly heightened risk.”
“The latest Panama scandal will see the public increasingly question both the financial services system and key political public figures, and it is therefore clear that oversight and scrutiny from the financial institutions will need to increase directly in this area. In previous months, there has been greater political and governmental collaboration, and it is important that this continues to increase. This has been driven largely by regulation which aims to ensure individuals are paying the correct tax on assets, but this is expected to have a bigger social impact for issues such as terrorist financing” Curtis said.
Data being readily available means that financial institutions will be put under additional burdens, such as processing questioning documentation. This should tackle anti-money laundering effectively and would be a process that would create a barrier to data sharing if a potential Brexit did occur. “That said, the recent announcement that the five largest economies in the European Union have agreed to share information on secret owners of businesses and trust as part of new data exchange rules, will support anti-money laundering operations in the wake of Brexit.”
UK Prime Minister has called for an international anti-corruption summit in London this month which could be the best place to introduce these new standards for handling data, according to Dan Hough, Professor of Politics at University of Sussex. “The UK will inevitably be at the centre of pushing for, or kicking back against, changes in international financial regulations. Cameron has the choice between watching and worrying from the sidelines, or seeing the Mossack Fonseca case for what it really is - a wake up call to try and finally do something about the long outdated rules and regulations that shape international financial transactions.”